A Share Purchase Agreement (SPA) is a legal contract between a buyer and a seller to transfer ownership of shares in a company. It’s commonly used when someone is buying or selling shares of a private limited company.
What is a Share Purchase Agreement?
It is a written agreement that sets out the terms and conditions under which shares of a company are sold. It protects both the buyer and the seller by clarifying what exactly is being sold, for how much, and under what conditions.
Advantages of Share Purchase Agreement
- Legally Binding- As the Share Purchase Agreements are being formally executed between the parties for sale of shares making the transaction legally accurate as well as organized by clearly stating out the expectations of the parties.
- Reduces Complications-SPA is detailed and covers all the areas involved for undertaking the transaction thereby making it unambiguous and also reducing the possibilities of confusion in the future.
- Tracking of Records-These Agreements help the appropriate authority to keep track of the similar transactions and enforce them.
Key Elements of a Share Purchase Agreement
1. Parties Involved
Names of the buyer and the seller.
2. Details of Shares
How many shares are being sold.
What type/class of shares.
Which company the shares belong to.
3. Purchase Price
The agreed price for the shares.
Payment terms (lump sum, installments, etc.).
4. Closing Date
When the transaction will be completed.
5. Representations and Warranties
Assurances given by the seller (e.g., they legally own the shares, the company has no hidden debts, etc.).
Sometimes, the buyer also gives assurances.
6. Conditions Precedent
Any conditions that must be met before the deal goes through (e.g., board approval, regulatory approvals, etc.).
7. Indemnities
Protection for the buyer if any undisclosed problems come up later.
8. Confidentiality
Both parties agree not to disclose sensitive information.
9. Governing Law
Which country or state’s laws apply to the agreement.
FAQs
Why is an SPA Important?
- Avoids misunderstandings.
- Helps in due diligence.
- Offers legal protection.
- Sets out a clear roadmap for the transaction.
When Do You Need a Share Purchase Agreement?
- You are selling or buying shares in a private company.
- Investors are coming in or leaving.
- Founders are selling part of their equity.
- Partners are restructuring their ownership.
